Tuesday, May 12, 2015

Microcap Financings: Regulation A+ Offerings Join Public Shell Company Mergers and Self-Registrations to Create Small Public Companies

                                                                                                                                            
By: Jim Verdonik
I'm an attorney with Ward and Smith PA. I also write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs.  You can reach me at JFV@WardandSmith.com or you can check out


or my eLearning course at  http://www.youtube.com/user/eLearnSuccess or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW

Title IV of the JOBS Act directed the Securities and Exchange Commission to issue a new regulation A with higher offering limits and other provisions that make the new Regulation A more attractive to issuers.  The new Regulation A has been nicknamed Regulation A+, because it permits you to raise more money with fewer restrictions than in old Regulation A.. 

On March 25, 2015, the SEC issued final rules for Regulation A+ in Release No. 33-9741.

In this article, we'll discuss how you can use Regulation A+ to become a microcap public company and the advantages  and disadvantages of using Regulation A+ compared to merging with a public shell company or doing a self-registration without an underwriter.

Legal Eligibility to Use Regulation A+

Let's briefly list the types of issuers who are legally allowed to conduct Regulation A+ offerings:

  • U. S. and Canadian companies;
  • That conduct an active business or that will use the proceeds of the offering to purchase an active business that is identified in the offering disclosure documents;
  • That are not yet public reporting companies or registered investment companies; and
  • That have not committed a list of securities violations specified in Regulation A+'s Bad Actor rules.
Now, let's talk about how Regulation A+ compares to two other types of transactions that sometimes attract similar types of businesses.

Regulation A+'s Sweet Spot

Regulation A+ offerings can help you achieve many of the same business objectives that in the past were the goals of companies that did mergers into public shell companies or did self-registrations without an underwriter.

This article compares the advantages and disadvantages of three types of transactions both to raise capital and to become publicly traded companies:

  • Regulation A+ Offerings.
  • Merging into a public shell company.
  • Self-registration without an underwriter. 
Either merging into a public shell or a self-registration can be combined with a Rule 506 offering or other exempt offering as a way to raise money and become public without doing a traditional IPO through a firm commitment underwritten registered public offering.  Often, shares are registered for re-sale by investors from a prior private placement offering.  Companies often make contractual commitments to investors in the earlier private offering to become public by registering their shares for re-sale or by merging into a public shell followed by a re-sale registration within a specified time period after the earlier private offering.

Desired Results

But most people care less about process than the results they achieve.  Let's examine three different pathways to achieving the following results:

·         Raise up to $50 million

·         Give investors in the offering the ability to re-sell shares to the public.

·         Create a trading market for all shareholders.

Table 1 below identifies the specific steps each pathway (Regulation A+, public shell mergers and self-registrations) requires to help businesses raise capital, give investors the legal ability to re-sell shares and create a public market. 

Although Table 1 below compares Tier 2 Regulation A+ Offerings to public shell mergers and self-registrations, we shouldn't assume that Tier 2 offerings are always a better choice than Tier I offerings.  Tier 1 Regulation A+ offerings can help you achieve many of the same things a Tier 2 offering does.  Or a Tier 1 offering may be a useful step toward later doing a Tier 2 offering. 

In another article, we discuss how Tier 1 ofRegulation A+ differs from Tier 2, the goals they can each help you achieve and how to choose between doing a Tier 1 offering or a Tier 2 offering.

Now, let's jump into comparing Tier 2 Regulation A+ offerings to public shell mergers combined with a Rule 506 offering and to a self-registration following a Rule 506 offering.

 
TABLE 1 - SUMMARY OF TRANSACTION STEPS
 
Regulation A+
 (Tier 2 Offering)
Public Shell Merger Combined with Private Offering Before or After the Merger
Self-Registration Combined with Private Offering Before the Registration
The typical Tier 2 Regulation A+ offering is likely to include the following steps:
·         File Form 1-A with the SEC to begin the offering period.
·         File a draft Form 1-A privately like in a registered public offering.  SEC Reviews Form 1-A and provides comments to the issuer, but the filing and SEC comments must be made public at least 21 days before the SEC qualifies the offering to sell securities.
·         Make changes to disclosures in Form 1-A as the SEC requests.
·         SEC "qualifies" the offering. 
·         Can add pricing information to offering circular after offering is qualified.
·         OPTIONAL STEP: If you want to become a full 1934 Exchange Act company, file Form 8-A or Form 10 with the SEC
·         Begin sales in the Regulation A+ offering.
·         Complete the offering.  Offering can continue for up to three years.  Amend offering materials by filing annual financial statements and to report "fundamental changes" in the disclosed  information.
·         File Form 1-Z with the SEC to report sales in the offering and file sales notices with states where securities were sold in the offering.
·         Brokers can begin quoting prices in the market for the stock by complying with Rule 15c2-11.
·         Investors who purchase shares in the Regulation A+ offering can immediately begin re-selling shares acquired in the offering. Shareholders who did not purchase shares in the Regulation A+ offering can re-sell shares not issued in the Regulation A+ offering by complying with Rule 144.  Such shareholders may have already satisfied Rule 144's one-year holding period.
A Public Shell Merger combined with the a private offering may include the following steps:
  • Conduct a private placement to raise capital often using Rule 506.
  • File Form D with the SEC and states where shares were sold.
  • Negotiate and execute Merger Agreement to purchase a public shell company's outstanding shares.  (for cash and/or the owners of the public shell may retain some free trading shares). 
  • Public shell company discloses the merger agreement by filing a Form 8-K with the SEC.
  • Prepare and file with the SEC (within several days after the merger transaction closes) a "Super-Form 8-K" (with audited financial statements of the former private company) that describes the combined public shell company and the business of the private company that is merging into the public shell company and the terms of the merger.
  • OPTIONAL STEP: May file a Form 10 at this time if the public shell company was not already registered under Section 12 (g) of the Exchange Act.
  • Prepare and file a registration statement for the re-sale of the shares sold in the private placement.
  • Deal with SEC comments and amend the registration statement.
  • Deal with state securities law issues to permit public re-sales of shares originally sold when the company was private.
  • Registration statement becomes effective.
  • Investors who purchased shares in the private placement can begin re-selling shares listed in the registration statement for as long as the registration statement remains updated by disclosing material facts.
  • Other shareholders of the former private company can re-sell shares received in the merger under Rule 144.  The one-year holding period of Rule 144 begins when the public shell merger closes.
A self-registration combined with the a private offering may include the following steps:
  • A private placement to raise capital often using Rule 506.
  • File Form D with the SEC and states where shares were sold.
  • Prepare and file a registration statement for the re-sale of the shares sold in the private placement.
  • Deal with SEC comments and amend the registration statement.
  • Deal with state securities law issues to permit public re-sales of shares originally sold when the company was private.
  • Registration statement becomes effective. 
·         OPTIONAL STEP: : If you want to become a full 1934 Exchange Act company, file Form 8-A or Form 10 with the SEC
  • File a Form 10 if the shares will not be listed on a national securities exchange.
  • Brokers can begin quoting prices in the market for the stock by complying with Rule 15c2-11.
  • Investors who purchased shares in the private placement can begin re-selling shares listed in the registration statement for as long as the registration statement remains updated by disclosing material facts..
  • Other shareholders of the former private company can re-sell shares under Rule 144. Such shareholders may have already satisfied Rule 144's one-year holding period.


Table 1 above describes the primary steps required to complete each of the three multi-step transactions that include both capital raising and a pathway to becoming a publicly traded company. 

Important Timing Differences

All three types of transactions require approximately six months from the start until investors in the offering can begin re-selling their shares, but there are important timing differences for when the issuer receives money, investors can re-sell shares and public market trading in shares begins:

  • In the Regulation A+ offering, the issuer receives capital at the time it becomes a publicly traded company, which is similar to what happens in a traditional underwritten registered IPO. 
  • Some public shell transactions and self-registrations can occur at the same time as a financing, but in most cases the financing either precedes or occurs after the company becomes publicly traded.  Table 1 above shows the steps of shell merger transactions and self-registrations where the capital raising occurs before the company becomes publicly traded.
  • Where there is a time gap between raising capital and becoming publicly traded, someone is taking a risk that the other part of the transaction will not happen.
  • If the financing precedes the public shell merger or self-registration, the investors bear the risk that the company will not become publicly traded or that public trading will be delayed.  Investor risk usually results in lower valuations when you sell securities.
  • If the public shell merger or self-registration precedes the financing, the issuer and its existing shareholders bear the risk that the capital raising transaction will not occur or will be delayed after the company becomes public.  Obtaining adequate financing after you become public is not guaranteed.  Being a small publicly traded company that is undercapitalized substantially increases risk for the issuer and its shareholders.
  • Investors and the issuer and is shareholders may decide to share the risk by doing one capital raise before the issuer is publicly traded and a bigger capital raise after the company becomes publicly traded.
Now, let's compare the advantages and disadvantages of each type of transaction based on the regulations that apply to each.  We have divided these advantages and disadvantages into three groups:

  • Table 2 summarizes Transaction Process and Restrictions
  • Table 3 summarizes Shareholder Liquidity Issues: Resale Restrictions and Creating Public Trading Markets
  • Table 4 summarizes Post-Closing Reporting Requirement
Transaction Process and Restrictions

As you review Table 2 below, keep the following in mind:

  • Regulation A+ applies a single set of regulations to govern both the capital raising portion of the transaction and becoming a publicly traded company.  By doing so, Regulation A+ mimics the traditional registered IPO, but with special rules that are more suitable to smaller businesses than the issuers who usually do registered underwritten IPOs.  For both public shell mergers and self registrations, different securities regulations govern the capital raising transaction and the process of becoming publicly traded.
  • All three transactions normally take four to six months to raise capital and provide investor liquidity, but unexpected issues longer than six months.
  • All three transactions have comparable costs, except that in the public shell merger transaction, the issuer also has to purchase the public shell company for cash, for stock or for a combination of cash and stock. 
  • Each of the transactions can often be completed for $50,000 to $100,000 in legal fees, but the individual circumstances of the issuer can increase transaction legal fees above that range.  There are also accounting fees and selling commissions and expenses.
  • Regulation A+ costs are always front loaded.  Most of the expenses are incurred before you raise capital.  That means the issuer bears the risk that the costs will be incurred, but the issuer will either not raise money or will raise less than it anticipated.  Some issuers may do a small capital raise to finance the transaction costs before they start a bigger Regulation A+ offering.  We discuss this strategy in greater detail in another article.

 
TABLE 2 - TRANSACTION PROCESS AND RESTRICTIONS
 
 
Regulation A+
(Tier 2)
Offering
Public Shell Merger Combined with Private Offering Before or After the Merger
Self-Registration Combined with Private Offering Before the Registration
 
 
 
 
Purchase Price of the Public Shell Company
None
Price Varies with Market Conditions  Price can be for cash, stock or a combination
None
 
 
 
 
Transaction Expenses other than Purchase Price of the Public Shell
Usually between $50,000 to $100,000 in legal fees, plus accounting fees and sales commissions and expenses, that will vary according to the size and difficulty of the transaction.
Usually between $50,000 to $100,000 in legal fees, plus accounting fees and sales commissions and expenses, that will vary according to the size and difficulty of the transaction.
Usually between $50,000 to $100,000 in legal fees, plus accounting fees and sales commissions and expenses, that will vary according to the size and difficulty of the transaction.
 
 
 
 
Timing of Transaction Expenses
Most legal and accounting transaction expenses will probably occur before raising capital in the Regulation A+ Offering.  Some issuers will need to raise capital to fund up-front transaction expenses.
If the private placement occurs before the company becomes publicly traded, most expenses probably occur after raising capital in the private offering.
If the private placement occurs before the company becomes publicly traded, most expenses probably occur after raising capital in the private offering.
 
 
 
 
Time Investors Can Begin Re-Selling.  If the Regulation A+ issuer can quickly create a trading market, this instant liquidity should result in higher valuation of the shares.
Investors who purchase in the Regulation A+ offering can legally re-sell immediately the shares purchasedin the offering, unless they are affiliates of the issuer. 
Investors in the private placement must wait for registration of their shares for re-sale or until they can re-sell under Rule 144.
Investors in the private placement must wait for registration of their shares for re-sale or until they can re-sell under Rule 144.
 
 
 
 
Stigma With Investors
Regulation A+ offerings are not as highly regarded by institutional investors as traditional underwritten IPO, but because he SEC reviews the offing documents  there isno real stigma – especially with recent changes to securities laws that create many new types of capital raising transactions sad technology changes that are creating new trading markets.
The SEC does not like public shell companies.  Some SEC rules place restrictions on public shells and former public shells that do not apply to other companies.  Some investors fear stock manipulation in public shells and former public shells.
Issuers that do self-registrations generally are not as highly regarded by investors as companies that did traditional IPOs, because they lack the backing of an underwriting syndicate, analyst following and have low trading volume but SEC rules do not penalize issuers.
 
 
 
 
Risks from Free Trading Shares
All free trading shares are issued to investors in the Regulation A+ offering at a verifiable investment price.  The price is usually higher than the price existing shareholders paid in earlier financings, which reduces market manipulation risks for issuers and their existing shareholders.
Insiders of the public shell may have a very low purchase price per share and identities may be hidden behind dummy accounts.  Both increase the risk of market manipulation.
All shares being registered are issued to investors in the private placement offering at a verifiable investment price and are named in the re-sale registration statement, which reduces market manipulation risks for issuers and their existing shareholders.
 
 
 
 
State Registration Preemption
Yes.  State registration laws are pre-empted for both primary sales by the issuer and re-sales by the issuer's affiliates in the Regulation A+ offering without regard to whether the issuer lists the shares on a national securities exchange.
Rule 506 pre-empts state registration laws for the capital raising.  But state registration laws are not pre-empted for re-sales by affiliates, unless the issuer lists the shares on a national securities exchange.
Rule 506 pre-empts state registration laws for the capital raising.  But state registration laws are not pre-empted for re-sales by affiliates, unless the issuer lists the shares on a national securities exchange.
 
 
 
 

As indicated in Table 2 above, affiliates of the issuer are permitted to re-sell shares in the Regulation A+ offering.  But new investors often see re-sales by insiders as a warning sign.  Therefore, many issuers may choose to limit re-sales by insiders in Regulation A+ offerings. 

Liquidity For Shareholders: Resale Restrictions and Creating Public Trading Markets

Even if insiders re-sell some shares in Regulation A+ offerings, the primary source of liquidity will depend upon the legal ability to re-sell shares into the market after the Regulation A+ offering and the issuer's ability to create a public trading market for its shares. 

Table 3 below discusses the rules that affect public market trading following each of the three types of transactions.  We can see from the table below that:

·         Regulation A+ offers certain advantages in facilitating trading.

·         The Regulation A+ advantage starts with the issuance of free trading shares in the Regulation A+ offering that are not "restricted securities."

·         The ability to re-sell Regulation A+ offering shares without a registration statement means that it isn't necessary to file and update a re-sale registration statement and avoids disruptions in re-sales if material events occur that he issuer has not disclosed.

·         By avoiding being a public shell company, the issuer avoids some SEC restrictions on public shell companies, including limitations on the use of Rule 144, legend removal issues and limitations on the issuer using Form S-3 in later registrations.

·         Brokers can quote prices in public markets for Regulation A+ issuers under Rule 15c2-11 like they can for full 1934 Exchange Act reporting companies

·         Regulation A+ issuers can use Form 8-A to list securities on a national securities exchange at the time of qualification or re-qualification of a Regulation A+ offering.

 
TABLE 3 - LIQUIDITY FOR SHAREHOLDERS: RE-SALE RESTRICTIONS AND CREATING PUBLIC TRADING MARKETS
 
Regulation A+
(Tier 2)
Offering
Public Shell Merger Combined with Private Offering Before or After the Merger
Self-Registration Combined with Private Offering Before the Registration
 
 
 
 
Are shares sold in the offering "restricted securities?"
No. Shares sold in the Regulation A+ offering are not restricted securities.  Non Affiliates can re-sell unrestricted securities issued in the Regulation A+ offering without complying with Rule 144 and without further registration.
Yes.  All securities sold in the private placement offering are "restricted securities."  Must either register the re-sale of the shares or comply with Rule 144 to re-sell restricted securities.
Yes.  All securities sold in the private placement offering are "restricted securities."  Must either register the re-sale of the shares or comply with Rule 144 to re-sell restricted securities.
 
 
 
 
Maintaining an updated re-sale registration.
Because shares purchased in the Regulation A+ offering are not restricted shares, investors who are not affiliates of the issuer can re-sell shares purchased in the Regulation A+ offering without updating a re-sale registration statement.
Re-sale registration statements must be up-dated to enable shareholders listed in the registration statement to re-sell.  This can cause expenses and the occurrence of material events may cause re-sales to be suspended until disclosure is made.
Re-sale registrations must be up-dated to enable shareholders listed in the registration statement to re-sell.  This can cause expenses and the occurrence of material events may cause re-sales to be suspended until disclosure is made.
 
 
 
 
Is Rule 144 available for re-sale of "restricted securities?"
Yes.  Regulation A+'s semi-annual filing requirements qualify as current public information for purposes of Rule 144 (c) for half the year.  Issuers can voluntarily file two additional quarterly reports to maintain Rule 144 availability for the full year.  Since these extra filings are voluntary, the issuer can exercise control over the timing of market re-sales.
Yes, Rule 144 is available for re-sales if the issuer is current in its 1934 Exchange Act periodic reports, but use of Rule 144 is restricted for one year the issuer files Form 10 information with the SEC that reflects the issuer is no longer a shell company.
Yes, Rule 144 is available for re-sales, if the issuer is current in its 1934 Exchange Act periodic reports.
 
 
 
 
Termination of current public information requirement for non-affiliate re-sales under Rule 144.
The current public information requirement of Rule 144 (c) ceases to be required for re-sales by non-affiliates upon the later of (i) one year after purchase from the issuer or (ii) three months after ceasing to be an affiliate of he issuer.
Rule 144 (i) continues in perpetuity the current public information requirement of Rule 144 (c) for all shareholders of former public shell companies.
The current public information requirement of Rule 144 (c) ceases to be required for re-sales by non-affiliates upon the later of (i) one year after purchase from the issuer or (ii) three months after ceasing to be an affiliate of the issuer.
 
 
 
 
Are legends placed on stock certificates?
 
If so, when can legends be removed?
No legend is required for shares sold in the Regulation A+ offering to non-affiliates, because they are not "restricted securities."
 
Legends are required for "restricted securities" that were not acquired in the Regulation A+ offering until the shares can be re-sold under Rule 144 without volume restrictions. 
 
Legends on shares not sold in the offering normally can be removed one year after they acquired a non-affiliate acquires the shares.
Legends are required for all "restricted securities" until the shares can be re-sold under Rule 144 without volume restrictions.  The requirement that shareholders of a former public shell must comply with Rule 144's current public information forever raises concerns about whether issuers should remove legends and permit holding shares in street name after the issuer ceases being a shell company. 
Legends are required for all restricted securities until the shares can be re-sold under Rule 144 without volume restrictions.
 
Legends normally can be removed from shares owned by non-affiliates one year after they acquired the shares.
 
 
 
 
Can shares be held in street name?
Shares sold to non-affiliates in the Regulation A+ offering can immediately be held in street name.
 
Other shares of a Regulation A+ issuer can be held in street name after legend removal.
Until legends are removed, shares usually cannot be held in street name.
Until legends are removed, shares usually cannot be held in street name.
 
 
 
 
Rule 15c2-11requiremnts for brokers to quote prices
The Regulation A+ offering documents and periodic reports required by Regulation A+ gives brokers the public information Rule 15c2-11 requires for brokers to quote prices in public markets.
Filing Form 10 information with the SEC and 1934 Act periodic reports gives brokers the public information Rule 15c2-11 requires for brokers to quote prices in public markets.
Filing Form 10 information with the SEC and 1934 Act periodic reports gives brokers the public information Rule 15c2-11 requires for brokers to quote prices.
 
 
 
 
Listing securities for trading on a national securities exchange or registering under Section 12 (g).
Regulation A+ issuers are permitted to list securities for trading on a national securities exchange by filing Form 8-A when the Regulation A+ offering is qualified or re-qualified, which is easier than filing a Form 10 with the SEC, because you can incorporate by reference and effectiveness is automatic.
Form 10 information is required and effectiveness is not automatic for registration purposes.
Can use form 8-A as part of the registration process.
 
 
 
 
New Trading Markets
(modeled on the London AIM Exchange and the Canadian TSX Venture Exchange)
The SEC is considering whether to authorize new "venture markets" like in Canada and London."  The SEC has indicated it is considering making Regulation A+ issuers eligible for trading on new venture markets.
Given past restrictions on public shell companies in SEC rules, the SEC may restrict use of new venture markets by public shells and former public shells..
There is no known market access penalty or advantage for doing a self-registration.
 
 
 
 
Ability to Use Form S-3 in later registered offerings
By allowing affiliates to re-sell shares in the Regulation A+ offering, issuers can increase the non-affiliate float to exceed $75million as required for some uses of Form S-3.
Issuers cannot use Form S-3 to do an offering for one year after they stop being a shell company.
There is no penalty or advantage for doing a self-registration.
 
 
 
 

As indicated in Table 3 above, compliance with periodic reporting requirements are important to allowing holders of restricted securities to re-sell their shares under Rule 144.  The same restrictions don't apply to Regulation A+ offering shares purchased by non-affiliates, because they are not "restricted securities."

Primary Differences in Public Reporting Requirements
As indicated in Table 4 below Regulation A+ issuers have substantially less onerous reporting requirements than issuers than that merge with a public shell company that is required to file 1934 Exchange Act reports or issuers that do a self-registration.  The differences include the following:

·         Regulation A+ requires filing half the reports that full 1934 Exchange Act compliance requires.  Regulation A+ requires two reports each year compared four reports for a 1934 Exchange Act issuer.

·         Generally, Regulation A+ reports require less detail than full 1934 Exchange Act reports require.

·         Regulation A+ requires reporting some material events like on a Form 8-K, but fewer events trigger filings by Regulation A+ issuers.

·         Regulation A+ issuers are not required to file proxy statements and Section16 and 13 reporting and liability rules do not apply to purchases and sales by large shareholders, officers and directors of Regulation A+ issuers.

·         Rule 13a-5 requiring disclosure controls and procedures and internal controls over financial reporting do not apply to Regulation A+ issuers that are not listed on a national securities exchange.

·         Regulation A+ provides an easy way to transition to full 1934 Exchange Act reporting.

 
 
TABLE 4 - POST-CLOSING REPORTING OBLIGATIONS
 
 
 
Regulation A+
(Tier 2)
Offering
Public Shell Merger Combined with Private Offering Before or After the Merger
Self-Registration Combined with Private Offering Before or After the Registration
 
 
 
 
Reporting obligations
Form 1-Z discloses sales in the offering
 
Form 1-K Annual Report includes audited financial statements
 
Form 1-SA Semi-Annual Report
 
Form 1-U Current Report for important events
 
Form 10-K Annual Report includes audited financial statements
 
Three Quarterly Reports
 
Form 8-K Current Reports
 
May also include Proxy Statements, Schedule 13Ds and Section 16 reports and liability depending which Sections of the 1934 Exchange Act  applies to the issuer.
Form 10-K Annual Report includes audited financial statements
 
Three Quarterly Reports
 
Form 8-K Current Reports
 
May also include Proxy Statements, Schedule 13Ds and Section 16 reports and liability depending which Sections of the 1934 Exchange Act applies to the issuer.
 
 
 
 
Rule 13a-5 Disclose Controls and Procedures and Internal Controls Over Financial Reporting
Rule 13a-5's Disclose Controls and Procedures and Internal Controls over Financial Reporting do not apply to Regulation A+ issuers that are not listed on a national securities exchange, because they have not filed a registration statement and the exemption from Section12 (g) registration described below.
Rule 13a-5's Disclose Controls and Procedures apply when the issuer registers under Section 12 (b) or (g) of the 1934 Exchange Act and Internal Controls over Financial Reporting rules apply when Section 15 (d) is triggered.
Rule 13a-5's Disclose Controls and Procedures apply when the issuer registers under Section 12 b) or (g) of the 1934 Exchange Act and Internal Controls over Financial Reporting rules apply when Section 15 (d) is triggered.
 
 
 
 
When do 1934 Exchange Act Registration and Reporting and Registration Rules begin to apply
Normal rules under Sections 12(b), 12(g) and 15(d) of the Exchange Act apply as described below, except that Regulation A + issuers have a special 12 (g) registration exemption described below, which means the issuer does not have normal 1934 Exchange Act reporting obligations, unless the issuer lists on a national securities exchange or a 1933 Act registration statement becomes effective.
Normal rules under Sections 12(b), 12(g) and 15(d) of the Exchange Act apply as described below.
Normal rules under Sections 12(b), 12(g) and 15(d) of the Exchange Act apply as described below.
 
 
 
 
Trigger for Registering Under Section 12 (g)
Tier 2 Regulation A+ issuers are not required to register under Section 12 (g) for as long as the issuer: (i) retains a registered transfer agent, (ii) continues to file periodic reports required by Regulation A+ and (iii) has a public float of less than $75 million (or $50 million in revenue, if there is no public float).  The Regulation A+ issuer can choose to continue this status even if the issuer exceeds the total assets and shareholders of record triggers for Section 12 (g) registration.  After the issuer no longer complies with the exemption there is a two year transition period.
Section 12 (g) registration is required if the issuer's total assets exceed $10 million on last day of fiscal year and the issuer has either (i) 2,000 shareholders of record or (ii) 500 non-accredited shareholders of record.
Section 12 (g) registration is required if the issuer's total assets exceed $10 million on last day of fiscal year and the issuer has either (i) 2,000 shareholders of record or (ii) 500 non-accredited shareholders of record.
 
 
 
 
Trigger for registering Under Section 12 (b)
Section 12 (b) registration is required if the issuer lists securities for trading in a national securities exchange.
Section 12 (b) registration is required if the issuer list securities for trading in a national securities exchange.
Section 12 (b) registration is required if the issuer list securities for trading in a national securities exchange.
 
 
 
 
Trigger for Section 15 (d)
Section 15 (d) of the 1934 Exchange Act is triggered if a registration statement becomes effective.
Section 15 (d) of 1934 Exchange Act is triggered if a registration statement becomes effective.
Section 15 (d) of the 1934 Exchange Act is triggered, if a registration statement becomes effective.
 
 
 
 
Method for Registering
File Form 10 and effective after review and approval by the SEC, except that Regulation A+ issuers can file a Form, 8-A when the SEC qualifies or requalifies a Regulation A offering whether or not the issuer is listing securities on a national securities exchange.
File Form 10 and effective after review and approval by the SEC.
File Form 10 and effective after review and approval by the SEC, except that can use form 8-A to list securities on a national securities exchange.
 
 
 
 
Exchange Act Periodic Reporting (10-Ks, 10-Qs, Form 8-Ks)
Required if any one of Section 15(d), 12(b) or 12 (g) is triggered by the issuer.
Required if any one of Section 15(d), 12(b) or 12 (g) is triggered by the issuer.
Required if any one of Section 15(d), 12(b) or 12 (g) is triggered by the issuer.
 
 
 
 
Proxy Statements Requirements
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).
 
 
 
 
Schedule 13D
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).
 
 
 
 
Section 16 liability and filing requirements
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).
Only required if register under Section 12 (b) or 12 (g).

 
SEC Preferences Disfavor Public Shell Companies

When we look at how the SEC has treated Crowdfunding under Title III of the JOBS Act compared to Regulation A+, we find that the SEC has made a good faith effort to create workable rules for Regulation A+.  For Title III Crowdfunding, the SEC has been much more obstructionist by proposing rules that will make Title II Crowdfunding useless to most companies trying to raise capital. 

For many years the SEC has made its objections to Pubic Shell Mergers the world's most poorly kept secret.  One wonders: Does the SEC view Regulation A+ as a carrot to induce issuers to choose a Regulation A+ offering instead of doing a public shell merger?

If the SEC does view Regulation A+ as way to reduce the number of public shell mergers, issuers can expect the SEC will try to develop an efficient review and approval process for Regulation A+ offerings.

The SEC has also indicated that it is considering permitting the creation of "venture exchanges" to facilitate secondary market trading for small Regulation A+ issuers.  Such venture exchanges are likely to be modeled on the London AIM Exchange and the Canadian TSX Venture Exchange.  Don't be surprised if the SEC places restrictions on shell companies and former shell companies from access to the venture exchanges.  Future access to such venture exchanges could become a big advantage for Regulation A+ issuers.

Other articles about important Regulation A+ issues include the following:

 
Summary of Key Provisions of New Regulation A+
 
 
Is Title III Crowdfunding Already Obsolete? Regulation A+ = Supercharged Crowdfunding
 
 
Your Goals Will Determine Whether Regulation A+ Is Right for Your Business
 
 
Which Should You Choose: Tier 1 or Tier 2 of Regulation A+?
 
 
Why Choose?  Why Not Do Both A Rule 506 Offering Followed by a Regulation A+ Offering?
 
 
Microcap Financings: Regulation A+ Offerings Join Public Shell Company Mergers and Self-Registrations to Create Small Public Companies
 
 
State Securities Law Issues in Regulation A+ Offerings
 

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1 comment:

  1. Good post! I know that large part of capital is invested in virtual data rooms because of their value on the market. In prospects it could be very profitable branch. The point is that many companies raise their income by using VRDs like Ideals for managing data and performing such time-consuming operations like M&A and due diligence faster and more efficiently.

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